Estate Planning Flashcards
7 cards from real CIA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Estate Planning flashcards as text
What is the primary estate planning advantage of funding a revocable living trust during the grantor's lifetime?
Answer: It allows the trust assets to avoid probate at death
Assets titled in a funded revocable trust pass under the trust terms and avoid probate, but they remain in the grantor's gross estate.
What is the main purpose of an irrevocable life insurance trust (ILIT)?
Answer: To keep the death benefit out of the insured's gross estate
When the ILIT owns the policy and the insured holds no incidents of ownership, the proceeds are excluded from the insured's gross estate.
An insured transfers an existing life insurance policy to an ILIT and dies 2 years later. What is the estate tax result?
Answer: The full death benefit is included in the insured's gross estate
Under IRC Section 2035, transferring a life insurance policy within 3 years of death pulls the proceeds back into the gross estate.
Why do trustees of an ILIT typically send beneficiaries 'Crummey' notices?
Answer: To give beneficiaries a temporary withdrawal right so gifts to the trust qualify as present interests
A temporary withdrawal right turns a future-interest gift to the trust into a present interest that qualifies for the annual gift tax exclusion.
What does a spendthrift provision in a trust generally do?
Answer: It stops a beneficiary from assigning their interest and stops creditors from reaching it before distribution
Spendthrift clauses stop voluntary and involuntary transfers of a beneficiary's interest until the trustee actually distributes it.
In an intentionally defective grantor trust (IDGT), who pays income tax on the trust's income?
Answer: The grantor, even though the assets are excluded from the grantor's estate
An IDGT is a grantor trust for income tax purposes but not for estate tax purposes, so the grantor pays the income tax and the assets stay out of the estate.
To qualify for the marital deduction, a QTIP trust must give the surviving spouse which right?
Answer: All of the trust income, payable at least annually, for life
A QTIP trust requires the surviving spouse to receive all income at least annually, and no one else may receive distributions during the spouse's life.